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Research is Critical in Covered Calls

By Edited Nov 13, 2013 0 0

Employing covered calls strategy is great approach in getting a good return on your investment. This is evidenced by the fact that covered calls are being used by a majority of stock investors. This approach gives you the opportunity to earn without too much risk. It provides ample protection from the wild market swings. Beginners and experts alike are using this strategy to proactively make use of their stocks to earn a premium rather than just passively waiting for the value of the stocks to increase before they sell. But how are the buyers and sellers able to use this strategy to their advantage.


Research is probably the thing that would either make you earn from your investments or lose money from a bad decision. Buyers and sellers alike put in quality research into their decisions before making them, especially if they are using covered call strategy. Sellers use this strategy if they believe that the market will underperform and the value of their stocks would either decrease or stay flat. In knowing this, they try to earn by writing covered calls on their stocks because they sell these at a premium. If the conditions favor their reading, they earn from the premium and retain ownership of the stocks. The buyers on the other hand are very optimistic that the prices of the stocks will increase and could even exceed the agreed amount. They believe in this so much that they are willing to pay a premium on the stocks because once the time comes that their market reading holds true, they can exercise their right to purchase the stocks and in the process, being able to get the stocks at a discount. Covered calls also protect the buyer from too much risk exposure. If the price of the stocks underperform and goes below the original price, they only lose the premium they paid on the stock and not the whole amount. This drastically cuts down their losses.


In all this, research plays a crucial role in determining how the buyers and sellers would react to the covered calls. It is quite easy to do this with the internet giving and feeding results at blazing speeds. Unlike in the past when research was too tedious having to reach for dusty back copies of newspapers and annual reports, it now just takes a few clicks and results pop in to your computer window in a matter of seconds. You just have to filter the information depending on credibility and if it is something useful. 



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